Cities

This Five-Year Plan (FYP) focuses on ensuring the provision of the most fundamental services to all citizens and guaranteeing a baseline standard of service in underdeveloped regions, aiming to reach parity with the national average in terms of service quality.

A centerpiece of the FYP is a guideline of service standards across 81 programs, including education, employment, and healthcare, among others. This list defines the government’s responsibilities and specifies standards of service quality. The list also clearly delineates the funding responsibility between central and local governments.

Eight categories of public services, and their goals, are defined in the FYP:
1. Basic education: coverage of compulsory education will increase to 95%, and educational resources will be more equitably distributed in the vast majority of counties and cities;
2. Job training: provide vocational training to 40 million migrants;
3. Social insurance: pension and medical insurance coverage will reach 90% and 95%, respectively;
4. Healthcare services: open one general hospital and one traditional Chinese hospital in every county, particularly in poorer regions;
5. Social security: provide basic income to the elderly, disabled, the poor, and orphans;
6. Public Housing: government will help renovate 26 million units in both urban and rural areas;
7. Culture and sports: public library visits to be raised to 800 million annually;
8. Special care: more than 95% of disabled citizens living in poverty will receive financial assistance.

Revising goals in the 2014 “National Urbanization Plan,” the latest policy aims to speed up the rate of urbanization. Beijing plans to prioritize granting hukou to long-term migrants and second-generation migrants, most of whom were born in the city where they currently reside.

Much like the immigration debate in the United States, hukou preferences will be biased toward those with higher skills and education. In particular, college and vocational school graduates, as well as students who have studied abroad, can receive hukou in any city ranked below provincial capitals. Finally, migrants in megacities (>5 million) will have an easier time receiving hukou in less populated districts within those cities.

To spur local governments into action, Beijing intends to change political incentives by incorporating hukou reform progress as a metric for local cadre evaluations and as a factor in determining funding allocation for local infrastructure.

To incentivize cities and help them cover the costs associated with urbanizing rural migrants, the central government intends to reward cities with subsidies and fiscal transfers based on migrant inflows. Allocation of this funding will prioritize smaller cities in central and western regions, where 100 million rural residents and migrants are expected to be urbanized by 2020.

As such, fiscal budgets at every level should take into account the additional expenditure for providing such services to migrants. Local government at the next higher level will also be required to fill any funding gaps through fiscal transfers. The policy also stipulates that migrants won’t be forced to give up their farmland, though voluntary transfer or sale of rural land is still restricted.

The latest policy requires local governments to increase education funding for rural schools, which have been systematically underfunded for decades. In addition, local governments are to not discriminate against migrant children, such as charging them higher tuition fees than local residents.

To improve the quality of rural education, rural teachers’ salaries must be no less than the average of government employees or urban teachers in the same county. In addition, rural teachers in particularly impoverished areas will obtain government guaranteed housing.

After having settled in a city for six months, migrants can apply for a residential permit if they have a stable job and living quarters. The permit allows access to public services, including compulsory education, basic public housing, as well as secondary benefits that basically fall under “daily urban life conveniences.”

These conveniences include issuance of proper migrant documents, renewal of identity cards, motor vehicle registration, and applying for driver’s license, among others. This permit is meant to serve as a stepping stone, as the majority of migrants will still not have a formal urban hukou in the near future.

This is an effort to equalize funding for compulsory education (grade and middle school) for rural and urban students. Previously, local government spending on education per head was dramatically biased in favor of the urban student. Starting in spring 2016, fiscal spending per student will be the same for rural and urban schools, and the funding will be portable for migrant children. Central and local governments will jointly pool their funding, though the central government will shoulder a larger share of spending for poorer regions.

Moreover, starting in spring 2017, all students will be exempt from textbook fees and incidentals, while additional subsidies will be made available for financially strapped students, regardless of their rural or urban status. However, since the current chasm in spending per student is huge across regions, this new measure will likely have a limited impact on narrowing that gap in the near term.

The catastrophic insurance plan is an extension of the existing basic health insurance and strengthens the safety net for middle-class and low-income families. Previously, poorer citizens, especially those in rural areas, can become bankrupt as a result of paying for medical emergencies and critical illnesses.

By the end of 2015, this new insurance will have covered all residents who have enrolled in urban or rural basic medical insurance, with a reimbursement rate of over 50%. In principle, this new insurance scheme will be managed by private insurance companies. To get insurance companies to adopt and begin offering catastrophic insurance, the Chinese government will offer participating insurance companies incentives such as tax exemptions.

In a bid to transform Beijing into a more livable city and limit population inflows, the Chinese capital intends to cede its function as an economic center and become more exclusively the political, cultural, and global hub of China. This is within the context of the ambitious Jing-Jin-Ji regional integration plan, personally backed by President Xi Jinping.

The underlying premise of this integration plan is that each region will specialize and focus on its comparative advantage so that they become economically complementary. In effect, Jing-Jin-Ji wants to replicate the agglomeration and network effects of the Pearl and Yangtze River deltas that have seen notable economic success.

For Beijing, industry, education and healthcare institutes, and even some existing government bureaucracies will be relocated to the capital’s outskirts. Part of this effort is also meant to whittle down the city’s swelling population, since the government has a binding goal of capping the city’s population to no more than 23 million by 2020. This target effectively means Beijing no longer wants migrants and will encourage migrants to flow to neighboring regions.

In addition, Tianjin municipality will become a national R&D base for advanced manufacturing, a shipping hub for northern China, and an area for financial innovation and piloting certain reform initiatives. Finally, Hebei province’s role will be more multifaceted. Not only is it a poster-child for China’s post-industrial transition, the province is also expected to turn itself into a leader in the urbanization process and become an ecological buffer zone for Beijing and Tianjin.

Reform of the hukou system accelerates as Beijing aims to meet its 2020 goal of granting 100 million hukou to migrants. With this push, any migrant with legal and stable accommodations in cities with half a million or fewer people can now freely get a local hukou. Cities with population of five million or larger can adopt a score-based hukou application system, in which educational attainment and skill levels carry more weight in the application process.

Moreover, the latest “opinion” proposes a halfway measure for those who have yet to acquire a formal hukou. That is, anyone who has lived in a city for six months can qualify for a “residential permit”—a kind of green card with Chinese characteristics—that grants access to certain public services and can begin applying for hukou. In addition, Beijing will no longer distinguish between agricultural and non-agricultural hukou classes and implement a unified urban-rural household registration system.

In particular, the government offers protection of in-situ migrants’ rights, (i.e. newly classified urban residents as a result of urban expansion). According to the opinion, in-situ migrants should enjoy the same level of services and benefits as other urban residents, and they should not be forced to relinquish ownership of their land.

By 2020, China is expected to be 60% urbanized, and three-quarters of that urban population, or about 620 million, will have a local hukou. In 2014, for instance, urban residents as a proportion of the total population stood at 53.7%, but just two-thirds of these urban residents (~490 million) held a local hukou. In other words, only 35.7% of the total population held a hukou. To achieve the hukou target, that means more than 100 million rural migrants who are currently urban residents without hukou will finally acquire formal urbanite status. Even after achieving this target, however, it will still leave about a quarter of the urban population with no local hukou by 2020, according to the central government’s projections.

A key part of the plan is that Beijing hopes to incentivize the expansion of smaller cities with a population of less than five million, while limiting the growth of larger cities, particularly those along the coast. In fact, strict controls will be imposed on migrant populations flowing into cities with a population of over 10 million.

One of the incentives to encourage the dispersion of population to smaller cities is that it will be easier for migrants to acquire local hukou, without which they cannot enjoy the same level of public services as local hukou-holding residents. And Beijing plans to improve access to public services for urban migrants, and to narrow the gap between migrants and local urban residents in terms of social welfare benefits.

The Chinese government will set up a more portable pension system that combines pay-as-you-go with existing personal pension accounts. The new system will also merge the existing two non-employment based pension funds—one for rural residents and one for urban residents who don’t have employer-based pension plans. The ultimate goal is to make it easier for citizens to carry their benefits across provinces, thereby increasing population mobility.

However, portability will be limited to the personal account, while the pay-as-you-go part will still be determined by hukou (i.e. where one is formally registered as a resident). Therefore, although the system is modestly more flexible, benefits will still vary across provinces, as wealthier regions will offer more generous pensions. In addition, since this unified system only covers people without formal employment, it has an even more limited effect in terms of facilitating population mobility.

The Chinese government intends to renovate 10 million shantytown units across the country between 2013 to 2017. Priority will be given to shantytowns clustered in urban peripheral areas, especially those in mining areas facing resource depletion. The objective is to both clean up China’s urban slums and improve the living condition of lower income urban residents.

Unsurprisingly, the massive urban renewal project will be backed by state financing, interest subsidies, and tax credits. In addition, the shantytown renovation project is expected to create demand for construction and related sectors, which will help to stimulate economic growth.